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Satriun Lease Management: tackle your IFRS 16 challenge in 3 weeks!

Satriun Lease Management: tackle your IFRS 16 challenge in 3 weeks!

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Satriun Lease Management: tackle your IFRS 16 challenge in 3 weeks!

January 2019 saw many groups needing to report leases according to IFRS 16. Over 30 corporations have gone live early 2019 with Satriun Lease Management as calculation engine for their IFRS 16 postings. Leveraging their investment in SAP Financial Consolidation, corporations plugged Satriun Lease Management on-top of their consolidation solution, implemented the solution fast and delivered on the promise to have a Lease Accounting engine ready on time. Benjamin Steadman explains.

What are the main challenges of calculating the impacts of IFRS 16?

While the basic calculation of IFRS 16 impacts on a company’s financial statements is not complicated to calculate manually or to build within a spreadsheet, it can become extremely tedious and complex when all cases and variables are included, in particular: calculating prorates, applying indexes, dealing with irregular rents or changes in discount rates, capturing and applying impacts of options within lease contracts, etc.

Furthermore, it is important when addressing IFRS 16 to get help in identifying lease contracts falling under the IFRS 16 categorization, ensure the quality of information and readability of information, to integrate into the Groups’ application architecture by setting up downstream and upstream interfaces and thus secure information flows and to centralize the management or control of the IFRS16 process.

All the above is hard to achieve using spreadsheets or a non-dedicated IFRS 16 calculation engine (especially if the number of lease contracts is in the hundreds or above).

 

What does Satriun propose?

We were challenged by one of our clients, user of SAP Financial Consolidation, back in summer 2016, to find an and easy-to-implement solution for their IFRS 16 calculations and reporting needs. Back then, they were not satisfied with the level of maturity of the solutions presented to them and wanted to find a pragmatic approach, leveraging their existing tools.

Satriun has developed for them an add-on for SAP Financial Consolidation, that later became Satriun Lease Management (‘SLM’). Over 30 different SAP Financial Consolidation users have since added SLM on top of their group consolidation and reporting platform and are happily using it for recording lease contract data, performing IFRS 16 calculations and integrating the produced journals with their consolidation application and pushing them in their ERP. The solution has recently also been adapted to the US GAAP-equivalent of IFRS 16: ASC 842.

In a nutshell, SLM is a pre-configured Lease Accounting calculation engine, covering IFRS 16 and US GAAP ASC 842 used to centralize you leases, calculate and analyze IFRS16 or ASC 842 impacts and send IFRS 16 or ASC 842 restatement entries to your accounting tool(s) or directly to your SAP Financial Consolidation group application. SLM leverages existing investments of our clients in SAP Financial Consolidation, does not need a separate installation and infrastructure, implements within weeks and users familiar with SAP Financial Consolidation will need virtually no training.

 

Over 30 corporations such as Hermes Group, Swatch Group, Wilhelmsen, Bekaert or Technicolor are using SLM. What are the lessons learned from the implementation projects?

IFRS 16 or ASC 842 maturity is key: make sure your project blueprint is ready before starting the IFRS 16 tool implementation. Elements such as IFRS16 standard and transition method, accounting impacts (CoA & booking process), target process (centralized Vs local) and leases census should be addressed in priority.

Tool integration is a success factor: your Lease Accounting solution should be fully integrated within your existing application landscape. Designing inbound and outbound interfaces and making sure that all concerned applications contain the required amount of data is a prerequisite to the solution roll-out.

IFRS 16 & Account reconciliation is the final step: when setting up your IFRS 16 solution, keep in mind that you will need to have a simple way to verify that your IFRS16 bookings are in line with the lease expenses booked into your ledger. Reconciliations can be performed in your ERP or in your group consolidation tool.

Keep it simple: avoid the diehard attitude resulting in high complexity for non-significant results. Simplicity results in better auditability. Workarounds are often advantageous (i.e. avoid managing intercompany leases in the solution).


Benjamin Steadman is Executive Partner at Satriun, a Corporate Performance Management consultancy with offices in Amsterdam, Geneva, Paris, Munich, Zurich, Tel Aviv and Bucharest. Satriun clients include EMEA-based family owned businesses, stock listed corporations, as well as private equity portfolio companies. Satriun edits Satriun Lease Management (SLM), a comprehensive IFRS 16 and ASC 842 solution based on SAP Financial Management. Satriun also implements Lease Accounting solutions edited by Tagetik, Anaplan and OneStream. 

A new language to communicate long term value creation

A new language to communicate long term value creation

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A new language to communicate long term value creation

In a recent article called ‘Larry Fink Isn’t Going to Read Your Sustainability Report’ published on HBR.org, author Mark R. Kramer argues that sustainability reporting alone will not help investors understand long term value creation. What is needed is a new language — or at least a new way of bridging social impact and economic performance. The article ends with a call to action: “The need for a new language that bridges sustainability and finance is now.” Funny enough, that language is already there. It is just that not many companies have taken serious steps to try and learn it.

Already as early as 2013, the International Integrated Reporting Council (‘IIRC’) published its Integrated Reporting Framework. Integrated Reporting () promotes a more cohesive and efficient approach to corporate reporting and aims to improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital. According the IIRC there are various forms of capital, including financial, manufactured, intellectual, human, social and relationship, and natural capital.

 

While Integrated Reporting is the language spoken to investors and other stakeholders, the deeper linguistics can be found in Integrated Thinking. Integrated thinking is the active consideration by an organization of the relationships between its various operating and functional units and the capitals that the organization uses or affects. Integrated thinking leads to integrated decision-making actions that consider the creation of value over the short, medium and long term.

 

Companies shouldn’t try and reinvent the wheel

The challenge that most companies face is how to operationalize integrated thinking. The multi-capital idea and how that translates into actionable plans proves to be stubborn to implement. We firmly believe that companies shouldn’t try and reinvent the wheel. There are many concepts and models readily available to help turn integrated thinking into a reality and to bridge non-financial, intangible value drivers to their financial outcomes. This is what really facilitates a deeper discussion around long term (sustainable) value creation and short term economic performance.

 

Our own experience in the field of management consulting has provided us with a robust set of tools to operationalize integrated thinking and make not just a once-a-year glossy report to the outside world, but rather a further maturing of the financial planning and analysis function within the company. Such enhanced FP&A sets the stage for more insightful reporting practices. The implementation of an analytical system used to pose a lot of challenges given the breadth of information and coordination required, which is why it rarely was expanded beyond the executive level. With current technologies that support seamless connectivity of data sources, deploying analytical methods throughout the entire organization is easier than ever before.

 

Casper van Leeuwen is executive partner at Satriun, an international Corporate Performance Management consultancy with offices in the Netherlands, Switzerland, France, Germany, Romania, Israel and Belgium. Satriun advises large corporations in the areas of financial consolidation, budgeting & planning, and management reporting. 

Cash flow accountability – three quick wins to turn fiction into fact

Cash flow accountability – three quick wins to turn fiction into fact

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Cash flow accountability – three quick wins to turn fiction into fact

The IAS 7 “Statement of Cash Flows”, released in 1992, is one of the oldest international accounting standards. One would expect that with a legacy spanning over 25 years, cash flow would be well embedded within the performance management framework of every corporation. But the reality is the opposite. Cash flow statements exist in the obscurity of financial reporting. Most corporations go all-in on the income statement and base their financial reporting and incentive plans on profit and loss, often detailed by segment and function. Strange, since cash flow is regarded as the most justifiable method to appraise economic value. So how can cash flow accountability be turned into a fact?

It all starts with the indirect method, the most commonly used presentation format for cash flow statements. There are many reasons why the indirect method prevails over the direct method; mostly because the indirect method can be derived from financial accounting information and thus is relatively easy to prepare. Most financials unfortunately struggle to really understand what an abstract measure like ‘operating profit adjusted for changes in working capital’ really means. Here are three quick wins to get more value from cash flow statements, even when using the indirect method.

 

1. Reorganizing the balance sheet

Funny enough, it all starts with the balance sheet. Corporations generally elect to present and review balance sheets according a GAAP lay out, meaning assets on the one hand, and equity and liabilities on the other hand. This traditional lay out does not promote easy insights into operating performance and value, as it mixes together operating, investing and financing activities. A better practice would be to implement a derivative lay out that organizes the balance sheet by capital employed – operating and investing activities – versus funds provided – equity and net debt, and thus financing activities. This lay out provides a valuable connection to the three main captions of the cash flow statement.

 

2. Reorganizing working capital

With operating activities separately visible on the balance sheet it is also recommendable to prepare a crystal-clear definition of working capital. As a first measure, trade working capital and non-trade working capital should be identified. Trade items relate to those assets and liabilities that are directly linked to revenue and operating expenses. Those trade items in turn can be grouped into sections related to customers, suppliers, employees and tax authorities. Having trade working capital organized as such provides two powerful opportunities: on the one hand to come up with good DSO/DPO/DIO definitions, and on the other hand to provide a more ‘direct’ view on cash flow by linking each of the separate components of income statement to their counterparts in trade working capital.

 

3. Reorganizing cash flow forecasting

It is surprising to see that corporations can ask financials the impossible: to forecast a balance sheet. A balance sheet is a statement at a particular point in time – it is the logical end result of the transactions occurring up to that point in time. Therefore, forecasting should be all about income statement and cash flow statement. Utilizing reliable DSO/DPO/DIO definitions on top of the income statement allows to pretty accurately predict the evolution of working capital. Add on top forecasts for capital expenditure, income tax payments and payments from provisions and you already come to a solid free cash flow definition for your operations. This is the type of accountability you want to delegate, while keeping more ‘corporate’ elements such as the funding decision in the hands of treasury. Don’t bother asking your operations for a full balance sheet and cash flow – stick to capital employed and free cash flow instead.

 

Implementing these three quick wins already can boost the value added that cash flow statements bring to the performance management of the corporation. Taking cash flow to the next level – breaking it down by cash generating unit that may involve segmentation by division or product group – may be more complex and may require adaptations to how financial information is captured within the accounting ledgers.

 

Do you want to master Cash Flow?

I am hosting a cash flow masterclass in Amsterdam, The Netherlands, starting 12 November. Interested?

Casper van Leeuwen is executive partner at Satriun, an international Corporate Performance Management consultancy with offices in the Netherlands, Switzerland, France, Germany, Romania, Israel and Belgium. Satriun advises large corporations in the areas of financial consolidation, budgeting & planning, and management reporting. 

Is value-based corporate financial planning a myth?

Is value-based corporate financial planning a myth?

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Is value-based corporate financial planning a myth?

The Business Roundtable, a group of Chief Executive Officers of nearly 200 major U.S. corporations, recently issued a statement with a new definition of the “purpose of a corporation”. The reimagined idea of a corporation drops the age-old notion that they function first and foremost to serve their shareholders and maximize profits. Investing in employees, delivering value to customers, dealing ethically with suppliers and supporting outside communities are now at the forefront of American business goals. Adopting the financial planning and reporting processes to this new reality does not require reinventing the wheel since many value-based concepts are readily available.

This is the time of the year where many corporations are spending significant time and effort preparing and debating their annual financial budgets. Most budgets (and for that matter, the associated forecasts as well) are prepared using well-known instruments such as driver-based planning, zero-based planning and factor-based planning.

 

Driver-based planning is a great instrument for revenue and direct cost. It is used extensively in production companies as it utilizes anticipated production volumes and sale & purchase prices to determine the revenue, direct costs and thus the gross profit. 

 

Zero-based planning is a great instrument for variable indirect cost. It allows for a stringent cost control and a proper debate about where and why money is spent. A typical example is a marketing budget, where the planning of individual marketing campaigns enables a transparent decision for which one(s) to approve.

 

Factor-based planning is generally used for fixed indirect cost or the more immaterial components of a cost budget. Third-party services, for example those related to an outsourced company canteen, generally are subject to an inflation adjustment year on year. Most planners would apply such a straightforward inflation factor to arrive to their cost budget. 

 

A budget organized around income statement does not necessarily contribute to value-based corporate financial planning

Existing planning instruments mostly apply to the income statement. Corporations should ask themselves if their financial planning process is really value-based. Value-based corporate financial planning focuses on what matters most – enhancing the corporation’s net worth for all its stakeholders. Having a budget process organized around income statement does not contribute to that objective. Successful value-based corporate financial planning introduces two additional elements: a (better) understanding of the underlying non-financial value drivers and (better) cash flow planning capabilities required for resource allocations.

 

Non-financial value drivers 

The most relevant of all probably is establishing a good understanding of the underlying non-financial value drivers, or ‘pre-financials’ as they are sometimes called. While volumes and prices explain the basic mechanics behind income and expenses, companies should really be asking themselves what determines their success both in the short and the long term. The Integrated Reporting framework offers a handy toolkit to channel the search for, discussion about and reporting of non-financial value drivers. It presents human capital, intellectual capital, social & relationship capital and natural capital in addition to the classic financial capital (the funds provided to the company) and manufactured capital (the net assets employed by the company). There are merits in the understanding of how non-financial capitals fuel the company’s performance and as such, why companies should allocate resources towards the improvement of those non-financial capitals. This includes the Business Roundtable objectives related to investing in employees, delivering value to customers, dealing ethically with suppliers and supporting outside communities.

 

Cash flow planning

Cash flow planning is important to understand and decide on resource allocations in the short term for the benefit of value creation in the long term – like it or not, but cash still is king for commercial enterprises. Surprisingly, successful cash flow planning is heavily dependent on a more business-oriented view on balance sheet. Where most companies tend to stick to the ‘GAAP’ format for balance sheet, a ‘Capital Employed’ format provides for a more natural presentation of working capital and other operating activities, tangible assets and other investing activities, and equity & net debt as representatives of financing activities. The biggest challenge therein is the definition and management of working capital. It is important to getting to the bottom of the logical correlation between income and expenses on the one hand, and receivables and payables on the other hand. This often leads to more enhanced definitions of working capital, for example by breaking down into ‘primary’ or ‘trade’ working capital (directly influenced by the degree of operating activities) and ‘secondary’ or ‘non-trade’ working capital (not influenced by the degree of operating activities).

 

Value-based corporate financial planning is not a myth. There are good examples of companies that successfully apply value-based concepts. It entails a broader view on performance management – with the Executive Board leading by example. If companies choose to dilute their focus on operating profit in favor of non-financial value drivers and cash flow, a much richer debate on corporate performance management is the logical consequence. Those nearly 200 CEOs whose Business Roundtable recently announced their new definition of the “purpose of a corporation” do not have to search long for the planning instruments to help achieve their ambitions!

 

Casper van Leeuwen is executive partner at Satriun, an international Corporate Performance Management consultancy with offices in the Netherlands, Belgium, Switzerland, France, Germany, Romania and Israel. Satriun advises large corporations in the areas of financial consolidation, budgeting & planning, and management reporting. 

Maintenance and Support

Maintenance and Support

Application Maintenance and Support

Satriun provides professional Application Maintenance and Support (AMS) services – accompanying you after the go-live of your CPM solution with efficient functional and technical support

Do you require professional, fast and efficient support to stabilize your CPM implementation? Do you need assistance in your monthly close or budget cycle on your new CPM platform? Does your IT department require infrastructure support? Or do you simply need to carry on learning about your CPM solution capabilities and internalize that knowledge?

How we provide post-implementation support services

Following a new implementation of a CPM platform or a change in your CPM administration team or simply by decision to outsource your CPM platform maintenance and support, you may require to trust a capable external partner, expert in group accounting and controlling, expert in the CPM technology you use and with a professional support platform in place. Satriun is such a partner.

We generally cover the following functional topics:

  • Analysis of results computed by your CPM solution
  • Assistance on Plans, Budgets, Consolidation production
  • Error messages analysis and consistency checks
  • Knowledge transfer to CPM administrators and end-users
  • Adjustment of calculation rules
  • Assistance to reporting and scorecards creations and modifications
  • Non-regression testing following platform upgrades
  • Generic functional questions

We generally cover the following technical topics:

  • Assistance to understand technical calculations within the application
  • Assistance with Master Data management
  • Assistance with scripts, codes and rules
  • Security management and user access rights
  • Issues with Data Integration
  • Performance of version upgrades (on some CPM technologies)
  • Generic technical questions

With our relevant experience in both functional topics (controlling, IFRS, consolidation, reporting) and technical topics (architecture design and installation, performance management, data integration) we can deliver a value-added service that helps your organization not only in maintaining your CPM platform, but also in internalizing precious knowledge about the CPM technology in use and achieve independence.

We have a dedicated support team and can accommodate various service levels – from high availability and dedicated on-call resources to longer response times or planned improvement windows.

We run a professional helpdesk-style system with tickets, workflow, documentation and transparency in handling and analysing support requests and outcomes.

Top of the league specialists
Our specialists have wide-ranging and demonstrable experience in the commercial sector

Sophisticated approach
We offer best practices for every issue, based on our own philosophy.

We get the job done!
When others get stuck in the mire, we’re the ones who are brought in to get the job done.

We will help your organization to grow

Discover how Satriun can help your organization to develop further

Do you want gain more insights into Application Maintenance and Support?

Fill in the form and we get back to you

Satriun’s advice is independent
We have a detailed understanding of the software of our Technology Partners and we have a good, close working relationship with them. Our advice is however independent. We have made a deliberate choice not to sell licences as that could leave us open to other considerations, whereas Satriun is all about looking to see what your organization really needs and being able to provide impartial advice.

Planning & Budgeting

Planning & Budgeting

Planning & Budgeting

If you have your planning & budgeting process in order, your organization is ready for every challenge.

Which markets and segments provide growth opportunities for you as an organization? And which investments are involved? A solid strategic plan and a balanced budget are of great importance for sustainable growth. A forecast ensures you are constantly provided with an up-to-date outlook into the foreseeable future. Satriun helps you organize these planning and budgeting processes smartly and efficiently. But the picture is bigger…

Be distinctive in connectivity

According to Satriun, a good data model is able to request results, balance and cash flows across all components of the planning & control cycle, in a way and with a level of detail that fits each component. If you really want to be effective, you cannot work with separate data models and solutions, but the entire planning & control cycle must be recorded in one model. Only then can you really compare and act on time.

The planning & control cycle:

1. Strategic plan

What will you as an organization invest in for the coming years and in which segments do you expect to see growth? The strategic plan provides a glimpse into medium-term financial and non-financial indicators.

2. Budget

Detailed elaboration and assignment of the necessary financial resources to realize the strategic plan.

3. Actuals

Reporting and consolidating current events and analyzing financial and non-financial indicators against the plan.

4. Forecast

Updating the budget with today’s knowledge, often at a more compact level and using drivers. Sometimes focused on the current financial year, sometimes “rolling” in nature. The forecast is generally the starting point of the next strategic plan.

Comprehensive datamodel

To be able to develop a single and comprehensive data model, in-depth knowledge of the four components of the planning & control cycle are required. Strategic plan, budget, current events and forecast all have different dynamics both in terms of target group, in terms of detail and in terms of process. Satriun consultants like to dig into an organization to understand all the requirements. The ultimate goal of an effective data model is to be able to analyze financial and non-financial data in a meaningful way, regardless of where you are within the planning & control cycle.

Top of the league specialists
Our professionals have wide-ranging and demonstrable expertise.

Sophisticated approach
We offer best practices for every issue, based on our own philosophy.

We get the job done!
When others get stuck in the mire, we’re the ones who are brought in to get the job done.

We help your organization achieve its goals

Discover how Satriun can help your office of finance develop

Do you want gain more insights into Planning & Budgeting?

Fill in the form and we get back to you

Satriun’s advice is independent
We have a detailed understanding of the software of our Technology Partners and we have a good, close working relationship with them. Our advice is however independent. We have made a deliberate choice not to sell licences as that could leave us open to other considerations, whereas Satriun is all about looking to see what your organization really needs and being able to provide impartial advice.

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